A month has passed since the launch of the daily gas balancing platform, Kosatka.media talked to the President of the Association Gas Traders of Ukraine, Andriy Myzovetz, who spoke about the pros and cons that participants and the market are experiencing and how they adapt to the changes.
A month has passed since the launch of the daily balancing system, could you name the most successful and problematic aspects of the market for this month? What are the reasons for such situations?
Let's talk about the successful ones, firstly. The first is that the platform itself has started working and daily balancing has begun. The other is all derived from the fact that the system has started. For example, the successful aspect is that confirmation of the ownership of a product (gas – ed.) is happening very quickly now. I watched it myself. It happens that a few minutes pass and a trade notice on the transfer of ownership already arrives. Previously, with monthly balancing, you had to wait a day or two, at least. Another important aspect is that the speed of response to the price situation in the market has greatly increased. Now it can be implemented with just a few clicks. This is good, both for consumers and for suppliers. As for the negative moments, in the first days it was, of course, an unstable system operation. As the platform itself did not pass the testing period, in the first few weeks it was some kind of “working-test” mode. With a full load on the platform in full operation, all the bugs were identified and fixed. The second negative point or rather, objective reality, as few believed that the system would start on March 1, not everyone was organizationally and legally ready for changes. Therefore, many market participants had to change methods of work – from suppliers, GTS operators and ending with Ukrtransgaz. There are still unresolved moments. If complete test work had been carried out, then the market would have been prepared, the platform would have been tested, and there would not have been a tenth of the negative that had arisen.
What other difficulties were revealed in the new reality of the market?
Strictly speaking, this is the technical side and usability, which was shown by the operation of the system itself. For example, operations, based on the requirements of the code, all must be confirmed by a digital signature (EDS). Because of this requirement, certain actions have arisen, which are duplicated and take up a lot of time. There were also moments regarding data on allocations. They need to be “pulled out” mechanically –every day for every consumer to find out how much they consumed. The platform developers threw a bone and made a special form – now you can select a period, a consumer (several or all) and upload this data to Excel. I believe that this is absolutely normal work, both from market participants (after all, they see what is necessary for them) and from platform developers who respond to participants ’comments and suggestions.
How do market participants feel changes in the gas market in practice? What are the pros and cons of the switching to the new system? Who is winning more?
Both suppliers and consumers must potentially win. Consumers – because when changing price parameters and working conditions, there is an opportunity not to wait for the first day of the next month, but you can work by changing the daily price. In fact, it is even possible to change suppliers by the day, if something is not pleasant or there is a need. Such flexibility to consumers was previously inaccessible in principle. Therefore, it is quite a big step in front. Regarding the inconvenience, they also affect consumers to some extent. They have to change the methods of their work. If with monthly balancing, the application was issued to the supplier for a month, and the way it was split during the month didn’t really bother anyone, now everyone needs to understand that applications are given by day. Accordingly, it is necessary to react and calculate everything much more clearly and communicate both the consumer with the supplier, and the supplier with his customers, it is necessary more often. Yes, it changes business principles a little. These are fairly correct changes.
Industrial (non-residential) consumers are already working in a full-fledged market, they are quite advanced in terms of awareness: how this market works, how the price is formed, what volumes are possible, in what periods. Some consumers, strictly speaking, import themselves this resource from Europe. For them, this is not a novelty, they just have to change the approach to doing business, given the daily balancing, and I don’t see any drawbacks for them. As for suppliers, then perhaps those losses are incurred by those suppliers who did not pay enough attention to the preparation or were not restructured to operate in the daily mode. The differences are quite significant between monthly and daily balancing. Instead of physical balancing with gas volumes, commercial balancing with Ukrtransgaz’s financial obligations to suppliers or vice versa has come into effect.
Unbalances: does responsibility for it somehow fall on consumers, or are suppliers mainly paying for them?
According to the Gas Transmission System Code, commercial balancing by our GTS operator is carried out with suppliers. Therefore, all bills for unbalances Ukrtransgaz will expose to suppliers. At the same time, the models of work of suppliers with their customers are individual. If a supplier communicates with his customers frequently and regularly, understands his “joys and sorrows”, then the consumers of such suppliers react adequately enough to the changed situation and continue to cooperate. At the very beginning of the process, for many it was not clear, but during March, many consumers discovered the same code, read it, got acquainted with what has changed and are quite loyal to changes. Yes, they must be prepared for the fact that they will need to plan their consumption and be responsible for the unbalances that will arise. The market comes to this anyway.
How does liability for unbalances affect the price of gas supplied?
If we look at the commercial component of March, then the gas sale price for consumers was, of course, lower than the base price of Ukrtransgaz by several hundred UAH. If the supplier in such conditions is ready to take on the risks of consumers’ unbalancing, then there is a high probability that it will, by the end of the month, be without pants. Because when busting (gas overconsumption, in comparison with the declared volume – ed.) of the end consumer and the price of gas, for example, at 8300 UAH in the contract, the supplier will be forced to buy the missing gas from Ukrtranzgaz for 9650 UAH. I am talking specifically about March. If you buy at 9650 UAH and sell to the consumer at 8300 UAH – this is, rather, not a business, but a type of commercial suicide. In any case, I see the following formula for cooperation. The contract should be spelled out an acceptable price, but some penalties should be indicated for surpluses or shortfalls that go beyond the 10% prescribed in the Code (for unbalances in the amount of 10% of the declared amount, no penalty is charged – ed.). This issue will be regulated by the supplier with the consumer among themselves, in their contracts. I admit that there may be a form of contract that will not generally take into account the risks of consumer unbalance for the supplier, but then, accordingly, there will be another price for gas. At the same time, it is possible to prescribe in the contract a low price for gas, but also serious responsibility for unbalances. Different forms are practiced, but these are already individual relations of the supplier and the consumer.
Was the impact of the launch of daily balancing felt on the business activity of the market? Is the instability of launching a new system a deterrent factor, first of all, for foreign players?
It depends on what is meant by the system – the operation of the platform or the market itself? If it is a system of work in the market, then gas, was produced and is produced, was pumping from storage facilities and is pumping out, was sold and is sold, was delivered and is delivered. We understood that most likely, there will be a “waiting” period (beginning of March), when everyone will understand how the new system works. In my opinion, this period has already ended, and now I see only its development, the participants are actively involved in the work.
About foreign colleagues. I have not seen a single player with foreign roots who has made statements that he is winding up his activities on the basis that a progressive step has been made in Ukraine - the launch of daily balancing. All participants understand that when introducing new mechanisms, there is a transition period in which there are technical issues, and we are now seeing them in our country. I do not think that for foreign players this will be a daunting moment. On the contrary, it seems to me that they welcome such changes, seeing that in the last 5 years our market has developed so much and has become so close to the European one – with the business methods, according to the legislation, etc.
What will speed up development, reach a stable level of the system, and make work in the daily gas market more comfortable?
There are several aspects that would be highly desirable for the market to develop even faster. The first of these is the consumption metering system. I mean that suppliers must see the information about the consumption of their consumers on a platform that is true. In our country there is not very large coverage of devices for remote data transmission (modems on the counters), although this should have happened almost a year ago. And this somewhat holds back the normal understanding of operational unbalances and, accordingly, unbalances trading during the day. This will eventually come to a decision, and there will be no movement back in this aspect. The question is how quickly modems will be implemented at consumer enterprises, as their number is now small. But I think that daily balancing will become an important aspect that will push the installation of enterprise modems. Consumers will begin to understand that it is easier to install a modem for the same 10 thousand UAH and understand that regardless of the supplier, the enterprise will always have operational information on daily consumption. There are also cases where suppliers, when concluding a long-term supply contract, provide the consumer with a modem so that the consumer can share his operational information about consumption.
At the moment, in order for the market not to bear additional financial burdens and expenses, and given the fact that the market has not yet formed, there is no clear accounting of volumes, the Association Gas Traders of Ukraine has sent the Regulator a proposal to increase the zone of tolerance for unbalances. So, those 10% of unbalances (+/-) compared to the predicted consumption for which no fines are provided for, according to the Code, increase to 20%.
By proposing to expand the “tolerance zone” to unbalances up to 20%, do you mean a specific period, or is this period blurred?
I think that as long as large and medium consumers are not equipped with modems, this rate (20%) should be kept. As soon as we understand that our records are maintained adequately, the rate can be returned back to 10%. We have a fairly large number of agricultural enterprises – the same elevators, grain drying enterprises, sugar factories (in season) – they have extremely unstable gas consumption. An automated accounting system could resolve this issue. For this, again, we need devices that can remotely transmit their indicators. But such devices are installed in about 25% of large and medium consumers. For small consumers, this figure is even less than 1%.
Are there any approximate dates when consumers will have to install remote data transmission systems on their metering devices? How much are consumers interested in this?
In fact, modems are a mutually beneficial investment, both for the supplier and for the consumer himself. But first of all, for the consumer. As all changes in consumption, ultimately affect the final price of gas. With the presence of a modem the reaction to them can be instantaneous, in its absence – it can take two and three days, when unbalances have already appeared, and it is impossible to change anything. In this case, you should always be guided by the commercial side. Saving on penalties for unbalances, the consumer can calmly cover the installation of this modem, sometimes even less than a month. Installing a modem for the price will cost a little more than 1000 cubic meters of gas. It is not difficult to sort out or underpay this volume of gas - this is the level of consumption of a very small enterprise. With regard to the timing of the installation of modems, the GTS Code installation of meters for all categories of non-residential consumers was provided until May 1 of last year (2018). Then it was decided to postpone it for a year, and just last week the regulator decided that small and medium consumers who have low power meters installed may not equip them with remote data transmission devices at all. To some extent, this is a positive step, since the regulator has gone to meet a large number of small enterprises, for which the costs of installing a modem will be serious. But on the other hand, it is necessary to understand that such consumers need well-formed consumption profiles and normal forecast calculations that GTS operators can use in their work. Therefore, there is a practical sense in installing GSM modems for at least a few percent of small consumers, so that they can be extrapolated to the market — as with a sociological cut. Then the level of error in the forecasts will decrease very significantly. If the level of error in the predictions for small consumers is no more than 3-4%, this will be indicative, since in their totality they do not particularly affect the overall picture of consumption. At the same time, medium and large consumers must necessarily have modems for data transmission, because of their consumption consists of the entire picture of gas consumption in the country.
As for the Regulator, what is its role at this stage of launching the daily balancing market? Is there a wish or need for it to change somehow?
The Regulator showed tough will and discipline, forcing the market to work in new conditions. This is probably the right step, because one cannot postpone indefinitely. It is better to step into the river and learn to swim, than to sit on one bank all your life and never move to the opposite. The Regulator in the current environment should track possible pop-up inconsistencies legislation. For the National Regulatory Commission, it is important to react normally to changes in the market situation and take into account whether the market is developing or stagnating. After all, if we have a goal to achieve maximum market liquidity, then we need to create adequate full-fledged conditions for all market participants. And if we see that some of the licensees are abusing, or maybe unconsciously doing something, or the legislation does not quite correspond to our current realities of life, then we need to draw conclusions from these situations and try to lead them to what we want to see. Legislation is not some kind of static environment, and it is constantly changing. And this is an absolutely normal practice, after all, the situation at the market is changing, supply routes, price preferences, and mechanisms of work are changing. And the Regulator, as a party that must ensure equal working conditions for all, must meet the requirements and changes in market situations.
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